Almost exactly a year ago, Western Digital announced that they would be buying Hitachi’s hard drive division from Hitachi for $4.3 billion. Since then, the two companies have been working on closing the deal, one that would effectively consolidate the hard drive industry to just 3 companies. This in turn attracted the attention of regulatory agencies across the globe. Of particular interest was the potential impact on the 3.5” desktop hard drive market, as Hitachi was the smallest player in what was already a 3 competitor market (#4, Toshiba, is 2.5" only). If Western Digital’s acquisition of Hitachi went through, it would reduce the 3.5” desktop market to a duopoly of Western Digital and Seagate.

Ultimately the Japanese FTC signed off on the buyout on the condition that Western Digital sell off 10% of its 3.5” disk unit, however that concession was not enough for EU regulators and the FTC. Neither regulatory body was willing to approve the deal if it meant that WD and Seagate would be the only 3.5” hard drive manufacturers, so as announced late last month and being approved by both the EU and FTC this week, WD, Hitachi, and Toshiba will be entering into a 3-way deal.

Western Digital will be allowed to acquire Hitachi’s 2.5” and SSD businesses, but not the 3.5” business. Instead Western Digital will be selling that business to Toshiba – factories and all – along with granting licenses for the necessary patents, which would allow Toshiba to effectively continue in the 3.5” market from where Hitachi left off. This would firmly establish Seagate, Western Digital, and Toshiba as the 3 major players in the hard drive business across all product segments.

At this point it’s not clear when the deal would close, but with all the necessary parties agreeing to it, it should close sometime this month. Once that happens Toshiba will apparently need some time to ramp up their production of 3.5” drives, and according to the FTC Western Digital will be doing contract manufacturing for Toshiba until Toshiba is on their feet. The deal doesn’t stipulate whether WD would be manufacturing drives based on Hitachi technology or WD technology, but it’s likely that it will be Hitachi drives.

Finally, it would appear that this is as far as the EU and FTC are willing to let the hard drive market contract, at least at this time. Their various rulings have made it clear that they will block any attempt at consolidating the market to two manufacturers, so the wave of acquisitions that started in 2009 should be at an end.